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The Effect of Price and Entry Regulation on Airline Output, Capacity and Efficiency

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  • Arthur S. De Vany

Abstract

This paper develops a model of capacity utilization in an industry where price and entry are regulated. The distinctive feature is that capacity affects waiting time of consumers, and, therefore, influences demand. The result is that capacity utilization, output, and costs are jointly determined as a function of the regulator's policies, the value of time of consumers, and other exogenous variables. The model is estimated with airline data, and estimates of the price elasticity of demand, corrected for induced quality variation, and of the consumer's marginal valuation of capacity are obtained. These are then used to assess the efficiency of airline regulation.

Suggested Citation

  • Arthur S. De Vany, 1975. "The Effect of Price and Entry Regulation on Airline Output, Capacity and Efficiency," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 327-345, Spring.
    • Handle: RePEc:rje:bellje:v:6:y:1975:i:spring:p:327-345
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    Cited by:

    1. Gayle, Philip G. & Yimga, Jules O., 2018. "How much do consumers really value air travel on-time performance, and to what extent are airlines motivated to improve their on-time performance?," Economics of Transportation, Elsevier, vol. 14(C), pages 31-41.
    2. Forsyth, Peter, 2021. "Assessing the wider economic benefits of air transport," Transport Policy, Elsevier, vol. 104(C), pages 11-18.
    3. David Card, 1989. "Deregulation and Labor Earnings in the Airline Industry," Working Papers 627, Princeton University, Department of Economics, Industrial Relations Section..
    4. Gundelfinger, Javier & Coto-Millán, Pablo, 2020. "Price and demand behaviors in the Scandinavian airline industry following market liberalization," Utilities Policy, Elsevier, vol. 64(C).
    5. Coldren, Gregory M. & Koppelman, Frank S., 2005. "Modeling the competition among air-travel itinerary shares: GEV model development," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(4), pages 345-365, May.
    6. Yimga, Jules, 2017. "Airline on-time performance and its effects on consumer choice behavior," Research in Transportation Economics, Elsevier, vol. 66(C), pages 12-25.
    7. Bruno José Marques Pinto, 2005. "The Impact of an Old Fleet on the Demand for Air Transportation: The Case of VASP Brazilian Airlines," Industrial Organization 0506005, University Library of Munich, Germany.

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